The Securities and Exchange Commission (“SEC”) has issued an administrative cease and desist order as to Watts Water Technologies, Inc. (“Watts”), a water valve designer and retailer, and Leesen Chang (“Chang”), former general manager of Watts Valve Changsha Co., a wholly-owned Chinese subsidiary of Watts.


  • Between 2006 and 2009, Chang, on behalf of Watts’s Chinese subsidiary, approved payments to employees of government-owned design institutes to obtain recommendations and establish design specifications that favored the company’s products.  These payments were improperly recorded in the subsidiary’s books and records (and subsequently incorporated into Watts’s own books and records) as sales commissions.  Such payments generated in excess of $2.7 million in profits.
  • The SEC alleged that Watts failed to implement a sufficiently rigorous FCPA compliance plan on its acquisition of the subsidiary, including deficient FCPA training for its Chinese employees.  Chang compounded the problem by refusing to allow the translation of the subsidiary’s policy that generated these payments into English, thereby preventing the U.S. parent company from learning of the conduct at issue.


  • Watts has agreed to a payment of approximately $3.7 million, consisting of disgorgement, prejudgment interest, and a civil monetary penalty.  Chang agreed to a $25,000 civil penalty.


  • On learning of the FCPA violations at issue, Watts took prompt remedial action, including eliminating commission-based compensation for employees of the Chinese subsidiary, retaining outside counsel to draft an enhanced anticorruption compliance policy, and conducting a global anti-corruption audit.
  • Taken in conjunction with previous enforcement actions such as Rockwell Automation and ITT, this decision underscores the SEC’s recent focus on Chinese design institutes for anti-bribery investigation.